What are Irrevocable Trusts?
Irrevocable trusts are trusts that cannot be revoked or amended (with a few exceptions depending on the state that you live in). There are different varieties of irrevocable trusts and they may be used for a variety of reasons, including tax savings, protection from creditors, and charitable giving. Usually, irrevocable trusts will be used by individuals or families who either have or expect to have a taxable estate for estate tax purposes.
A transfer of property to an irrevocable trust with nothing in return is generally treated as a completed gift for gift tax purposes (it may be a whole or partial gift, depending on the circumstances). The transfer may not qualify for the "gift tax annual exclusion" ($15,000 in the year 2018) because usually a future, rather than a present, interest in the trust property is created (i.e., the beneficiaries don't get immediate access to the property).
The irrevocable trust will generally have its own annual income tax returns depending on the items of income, deductions, gain or losses on sale of assets, and credits that it has. In some cases, special provisions will be included in the irrevocable trust to treat it as a "grantor trust," which cause these items to show up directly on the trust creator's income tax returns. There are strategic decisions that may cause one form to be better than the other.
In most cases, unless the creator of the irrevocable trust retains some interest or power over the irrevocable trust he or she creates, the assets of the irrevocable trust will not be included in the trust creator's "gross estate" for estate tax purposes. In other words, the assets of the irrevocable trust won't be added into the value of the assets that he or she owns at the time of death.
For those with a particularly high net worth, it is worth considering how irrevocable trust planning can be incorporated into the estate plan, as it may bring considerable tax savings to you and your family.